Risk-Based Approach to Anti-Money Laundering and Combating Financing of Terrorism: A Guidance for Banks
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The Financial Action Task Force (FATF) has released a new guidance to help banks implement a risk-based approach to anti-money laundering (AML) and combating financing of terrorism (CFT). This framework provides a proportionate way for banks, countries, and supervisory authorities to assess and mitigate ML/TF risks.
Identifying and Mitigating ML/TF Risks
The guidance requires banks, countries, and supervisory authorities to identify ML/TF risks and take enhanced measures to manage and mitigate situations where the risk is higher. In low-risk situations, simplified measures or exemptions may be applied.
- Identify high-risk customers, products, and services
- Develop prevention or mitigation measures commensurate with identified ML/TF risks
- Allocate resources to areas of higher ML/TF risk
Supervision and Regulation
Recommendation 26 of the FATF requires countries to subject banks to adequate AML/CFT regulation and supervision. Supervisors must:
- Allocate resources to areas of higher ML/TF risk
- Have access to information relevant to determining a bank’s risk profile
Additional Sources of Information
The European Supervisory Authorities have published a report on anti-money laundering and counter-financing of terrorism risk-based supervision, while the Basel Committee on Banking Supervision has issued guidelines on sound management of risks related to money laundering and financing of terrorism.
Key Takeaways
- The risk-based approach aims to develop prevention or mitigation measures that are commensurate with the ML/TF risks identified.
- Banks, countries, and supervisory authorities must allocate resources to areas of higher ML/TF risk.
- Simplified measures or exemptions may be applied in low-risk situations.
By implementing a risk-based approach to AML/CFT, banks and supervisory authorities can ensure that they are taking proportionate measures to mitigate ML/TF risks while minimizing the burden on the financial system.